What is a 'Breakup Fee'
A breakup fee is a common fee used in takeover agreements if the seller backs out of a deal to sell to the purchaser. A breakup fee, or termination fee, is required to compensate the prospective purchaser for the time and resources used to facilitate the deal. Breakup fees are normally 1-3% of the deal's value.
BREAKING DOWN 'Breakup Fee'
A company might pay a breakup fee if it decides not to sell to the original purchaser and instead sells to a competing bidder with a more attractive offer. Sometimes a breakup fee can discourage other companies from bidding on the company because they would have to bid a price that covers the breakup fee.